Alternating Offers

Previously, we have seen how bargaining plays out when players are limited to one offer or a single counteroffer. This lecture goes deeper by allowing for four offers total. The goal is to eventually build up to unlimited potential offers, which we will cover in the next lecture.

Takeaway Points

As always, we can solve for the outcome of this interaction by working backward.

In the final stage, the parties will come to an agreement. This should be clear because the last stage is identical to an ultimatum game.

Because rejection in each stage is inefficient and the parties know they will reach some agreement later on, they can implement an agreement today commensurate with the future deal and avoid suffering that inefficiency.

Increasing the number of offers makes the division closer to an equitable split.